Government responses to global value chains: Understanding the national content policy of export credit agencies

Abstract

Export credit agencies are government entities that support a country’s exports through non-payment insurance policies. Traditionally, only high national content exports benefitted from their support. In recent years, most international trade involves global value chains and the export of intermediate goods with production in multiple jurisdictions, questioning the relevance of high national content policies. Export credit agencies and their national content policies provide a unique setting to explore government policy response to global value chains. I expected a link between global value chains and national content policies. However, making use of binary logistics regression, the findings suggested only a minor link to global value chain participation and no link to value-adding activities. Furthermore, the wealth of a country appeared as a strong influencing factor. This anomaly was a surprise and triggered further analysis, making use of abduction. The anomaly was confirmed by reviewing the export credit agencies’ websites and questionnaire responses and by retesting the value-adding activities using research and development as an alternative variable. Next, unemployment and country competitiveness were explored as possible explanations. None of these produced confirming results and the wealth of the country continued to dominate, although wealth interacting with competitiveness also emerged as a contributor. The relevance of wealth was confirmed using an alternative country wealth variable. Furthermore; the importance of country ratings, influenced by wealth and which enhances country competitiveness, was highlighted by export credit agencies within their websites. Determining the appropriate response to global value chains is a complex matter and the response of governments vary, with some embracing the concept and adjusting policies to support integration, while others remain circumspect, concerned by the effect on job creation. I conclude that the degree of wealth of an economy, especially when enhanced by competitiveness, facilitates the willingness of countries to devise a response. This places exporters and countries from smaller and less wealthy economies at a disadvantage. I suggest that global institutions, such as the World Bank, implement policies to address this imbalance.